Jump to content
dfernandez

403b Contributions, 415 Limits And Buybacks

Recommended Posts

Hi everyone,

 

I'm a financial planner with a PERS client who has a 415 limit question as part of a plan to buy PERS air time.

 

Facts:

1. 54-year-old client has both a 403b and 457 plan available to her at work. She maxes out on both, AND contributes the $3k catch-up available to her this year.

 

2. Client wants to buy up to 5 years of PERS "air time," and would prefer to do it through payroll deduction to reduce taxable income.

 

3. Client believes that the 415 limits of $41,000 (this year) apply to the combined total of all of these payroll deductions, e.g., $13k + $13K + $3k + payments through payroll deduction to buy PERS air time. She doesn't know where she heard this -- perhaps through the PERS presenter who came to her work place -- but is naturally hesitant to commit to the air time purchase without clarification.

 

My #1 question: Is she correct????? If this is TRUE, doesn't it mean that all of my STRS/PERS clients should consider or calculate their regular payroll deduction to STRS/PERS as part of the 415 annual elective deferral limits every year? And does that mean we have to consider the 415 limits before we can determine to do the air-time purchase through payroll deduction vs. transfer from existing 403b/457/IRA account balance?

 

A secondary question (probably for the 457 discussion board, but as long as I'm here...): does the 457 contribution count towards the 415 limits?

 

Thanks, as always, for any help you can give me.

 

Delia Fernandez

delfernandez@earthlink.net

562.594.4454

 

Share this post


Link to post
Share on other sites

2. Client wants to buy up to 5 years of PERS "air time," and would prefer to do it through payroll deduction to reduce taxable income.

---------------------------------------------------------------------------------------

I do not believe that the purchase of prior service credit through pre-tax payroll contributions is permitted. Section 414(h) allows for tax deferral of the mandatory contribution the participant must make to the PERS, i.e 5 percent of salary.

 

The purchase of prior service credit is allowed through after tax payroll deductions or by cutting a personal check for the total cost of the purchase, or as a tax-free transfer of funds from your 403b or 457b account to the PERS as you have stated.

 

Peace and Hope,

Joel L. Frank

Share this post


Link to post
Share on other sites

"It is permissible to purchase service credits through salary reduction. However, such purchases may have an impact on the amounts that may be contributed by salary reduction to other plans, since the purchase amount is considered an elective deferral".

--------------------------------------------------------------------------------------

I posted the question on benefits link and our friend Michael Devault posted the above answer. I stand corrected.

 

Joel

 

 

Share this post


Link to post
Share on other sites

Bill, How would you advise one who has the option to pay the "air time" via salary reduction or through a direct transfer from a pre-existing 403(b)/457(b) account?

 

Peace,

Joel

Share this post


Link to post
Share on other sites

Joel,

 

It would all depend on the clients financial circumstances. If they can afford to have the extra money taken from their paychecks and still fund their 403b's and IRA's then by all means it would be the best option to pay for it through the paycheck. If not then using money already in retirement accounts would be the choice.

 

Bill Mahoney

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...